I took a 401K distribution Feb 2015 for real estate transaction that fell through. Was able to roll over the cash from the distribution within 30 days to new IRA. However, I mistakenly had 401K provider take out Fed and State Taxes. Thus, the cash placed in new IRA was short by amount of Taxes paid.
Since those taxes could not be recovered now, and the actual rollover amount submitted by IRA provide excludes the taxes, how do I recover them at time of tax reporting?
I did submit the partial rollover, but of course that shows a significant remainder of taxes paid that are not being returned to me.
Unfortunately, the amount that was withheld is considered to be a distribution to you, and thus taxable itself.
So, if the gross amount was $100,000 but only $75,000 was rolled over, the difference of $25,000 is taxable.
I didn't follow the rest of your post. The Distribution is only after tax if you contributed to it with after tax money. But 401k is pre-tax. You are not paying tax on the amount rolled over. Just on the amount you did not roll over. The amount you put into the IRA will stay pre-tax until you take it out. (unless you rolled it over to a ROTH IRA).
1. I took a $240,000 distribution from my Fidelity 401K and had 36% taken out by them for Federal and State Taxes. The net distribution to me was $150,000. Thus, Fidelity dutifully issued a 1099 R showing the distribution. This happened in early February 2015
2. The real estate investment transaction for which we were going to use the funds fell through, but I still had time to roll over the distribution into a new IRA. We opened a new IRA with Chase Bank and deposited the $150,000. Of course the rest of the distribution had been sent to IRS and it was then we were told that there was no way, at that time to "claw back " the tax. So even though we met the rollover time frame, the IRS held their part of it
3. I was told by Chase that the only way to retrieve the taxes and deposit them in the new IRA was to handle it via my Tax Return. Trouble is that now I can find no way in Turbo Tax to inform the IRS that they are holding the rest of the funds that should be able to be rolled over
4. Chase then will issue a confirmation of the rollover for $150,000. I claimed it on my 2016 filing, but of course the difference in taxes paid to IRS magically just disappearing. Turbo Tax allowed me to enter the $150,000 rollover which qualifies me for a $55,000 refund, but the rest of the Tax stays with IRS.
5. At the same time the new IRA would be taxable again! I had intended to take the $55,000 plus the other $45,000 paid to IRS at the time of the distribution and add it back to the IRA....thus increasing it back up to the original amount.
I can't believe that there is no way to get the taxes paid reimbursed....especially since the IRS has no procedure for getting it back to us immediately after receipt to meet the rollover requirements. Am I really out the extra $45,000?
As VolvoGirl said, to complete the rollover of the entire $240,000 by the 60-day deadline you would have had to have come up with money from another source while the IRS and the state tax authority had some of your money until refunded.
It seems to me that Chase Bank gave me incomplete guidance when I opened the new IRA regarding how to retrieve the Taxes paid. I was only encouraged to use the next Tax reporting cycle to recover the funds.
It now seems that what I should have done was opened a line of credit with Chase, used it to fund the balance of the rollover and then report a full rollover during Tax reporting.